Good afternoon, ladies and gentlemen, and welcome to the Hercules Capital Q1 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Hara, Senior Director of Investor Relations.

Thank you, Nicole. Good afternoon, everyone, and welcome to Hercules' conference call for the first quarter 2016. With us on the call today from Hercules are Manuel Henriquez, Founder, Chairman and CEO; and Mark Harris, Chief Financial Officer. Hercules' first quarter 2016 financial results released just after today's market close and can be accessed from Hercules' Investor Relations section at htcg.com. We've arranged for a replay of the call at Hercules' webpage or by using the telephone number and pass code provided in today's earnings release. During the course of this call, we may make forward-looking statements based on current expectations. Actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delays between the date of this release and the confirmation of final audit results. In addition, the statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements including without limitation to risk and uncertainties including the uncertainty surrounding the current market turbulence and other factors we identified from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this release are made as of the date thereof. And Hercules assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit our website, htgc.com. For today's agenda, Manuel will begin with a brief overview of our first quarter financial and corporate highlights, followed by an overview of the venture capital markets, and the state of new investment market opportunities, and our perspective and outlooks for the second quarter of 2016. Mark will follow with a broader summary of our financial performance and results for both first quarter 2016. And following the conclusion of our prepared remarks, we will open the call for Q&A. With that, I will turn the call over the Manuel Henriquez, Hercules Chairman & Chief Executive Officer.

Thank you, Michael. And good afternoon, everyone, and thank you for joining us today for the Hercules Capital first quarter 2016 earnings call. First off, I am very pleased and proud to announce another outstanding and very busy quarter for Hercules Capital in the first quarter. We're off to a very strong start in 2016 turning in a terrific financial performance and financial results for the quarter. Our outstanding team of investment professionals once again delivered an outstanding originations activity. With impressive total new commitments funding a net portfolio growth driving us closer to our target of $1.3 billion to $1.5 billion total investment loan portfolio by the second half of 2016. This of course is subject to March conditions remaining favorable. In addition, we have been actively building and expanding our various sources of liquidity by bolstering our balance sheet to ensure continued access to a healthy supply of liquidity positioning us well as we turn our attention to the second quarter of 2016 with a strong balance sheet, solid core yields, solid ROAA and solid ROEE financial results and having plenty of dry powder to make new investments as we continue to drive earnings and investment portfolio growth. Now, let me take a brief moment to highlight some of the key financial results and financial - and key messaging points that I like to have share with you on this call. We started the year with a solid first quarter performance, achieving our targeted net investment loan portfolio growth. Our growth expectations for Q1 was for net portfolio loan growth of approximately $75 million to $100 million, and indeed, we achieved that. We achieved $90 million of investment net portfolio growth in our portfolio, above the midpoint of the range. Our target portfolio growth of $90 million places…

Thank you, Manuel. And good afternoon or evening, ladies and gentlemen. I will now briefly discuss our financial results for the first quarter of 2016 and add some context to the reported numbers. As Manuel commented, we had a strong Q1 2015, and I will give some direction on what we expect to see going forward. As we turn the portfolio of growth, our loan portfolio added cost increased from $1.152 billion at the end of 2015 to $1.242 billion at the end of the first quarter or an increase of 7.8%. We had strong total investment fundings of approximately $170.9 million in the first quarter, including the addition of 14 new portfolio companies, partially offset by $55 million of unscheduled early payoffs and normal amortization of $21.4 million. Our effective yields were 13.2% in the first quarter, down from 14.2% in the fourth. This decrease as Manuel have spoken to is primarily related to the amount of early payoffs and associated accelerated of interest and fees as previously discussed. We had early unscheduled payoffs of $105.5 million in the fourth quarter last year, compared to $55 million in the first quarter of this year. That's a reduction of approximately of 48% which was in line with the expectations at the end of the year. Given the current market condition and the age of our loan book, we expect to see $60 million to $80 million of unscheduled early payoffs in the second quarter of 2016. Core yields which exclude the effect of prepayment penalty fees and acceleration from early payoffs was 12.9%. This was in line with our expectations given the Federal Reserve's benchmark rate increase made in December 2015, coupled with 93% of our loans are variable interest rate loans. We expect our core yields to remain the…

[Operator Instructions] Your first question comes from the line of Ryan Lynch from KBW. Your line is open.

Hey. Good afternoon and thanks for taking my questions. You mentioned that you guys are seeing increased competition in smaller loan size, let's call it, $3 million to $15 million, a little more competition on $3 million to $7 million loan size. So as I look through your portfolio, I mean they're quite a bit of loans, under $15 million in loan size. So can you just talk about how you guys are managing and trying to grow, have good net portfolio growth over the next couple of quarters meanwhile trying to stay away from the increased competition that's residing right now in the sub $15 million VC loan market?

Thanks, Ryan, for the question. As I said on the call, we just completed $220 million in the origination in the first quarter. So there is an abundance of deal flow and deal activity out there. We just wanted to highlight that there is a bit of more of increased competition coming in. But I think that the cadence that we are trying to establish of new portfolio growth of $50 million to $90 million is well within our capabilities as you saw on Q1. And we do not expect nor do we focus tremendous amount of time on those smaller deal size. But I would utterly caution you that some of the smaller loans you see there have amortized down, and those were not the original balances. If you look at our portfolio on a static basis, you're looking on an average loan portfolio around $13 million and $15 million on average size, and those balances you're quoting just so happen to be legacy loans that have amortized down since we don't really do $5 million or $3 million loans to speak of.

Okay. And then just sticking with the competition theme, it feels like over time, competition kind of ebbs and flows. You'll see a lot of new participants come in and then they'll kind of exit. It sounds like some new participants are coming in recently. How would you characterize competition currently versus maybe one year ago?

I think competition a year ago is much more sophisticated, understood the asset class much better. I think the competition today we're seeing is a bit more sporadic, ill-prepared to understand the subtleties of underwriting venture loan and development-stage companies. And I think that when they venture in, and I will use the expression all are welcomed because it only takes a matter of one economic cycle and one amortization period to commence when they start realizing credit losses when not knowing how to un-write this credit in venture lending. It's a very complex credit underwriting. It doesn't lend itself to some of the financial ratios that you will otherwise see more typically used in lower middle market. And you have to have both a good credit discipline background, as well as technology or life sciences make up in order to truly underwrite and understand these credits. So I am not losing sleep about this competition. I am not worried about this competition. It's both not sustainable and they don't have enough capital liquidity from what we're seeing. And a lot of the loans that they tend to be taking away our loans that we probably would not otherwise do. And we're in a very fortuitous position to have a very strong portfolio, a very strong legacy of underwriting good credit quality. And we only need to grow by, again, $60 million to $110 million to achieve our endpoint and we're very comfortable with that pace and that liquidity we have to achieve that.

Got it. And then just one more. I know VC access can come through a variety of different ways, M&A, also the IPO markets. But with the IPO markets essentially being close over the past few months, are you guys seeing any increased opportunity investing in some of the more later-stage of VC-backed companies that were maybe planning on IPOing and now cannot and are looking to raise additional rounds of capital?

So the answer to your question directly is yes. The clarifications, your question, I would say that for the last 16 years, I don't think we've had a robust IPO market yet. I think the last really good IPO market that we have was probably 1998, 1999. Ever since then it's been a fairly anemic IPO activity with some hopes of increased activities that we saw probably take place at 2014, if you will. But, yeah, most people don't realize - and it's not written - quite a bit about and that is that venture capitalists don't actually see an IPO market. M&A is better. And the M&A market has remained fairly steady and robust throughout that 16-year period of time. There has been, obviously, periods within than 16-year period of time where M&A is curtailed, but I got to be very honest. We continue to enjoy a pretty good representation, IPO activities, from our companies that are going on out there. And we're necessarily concerned about that. But to answer your question, yes, many of these later-stage companies who are facing potentially down-round valuation of an equity will be looking to supplement their capital structure with some form of debt, and we're evaluating some of those players, and we're passing on many of those players as well.

Great. Those are all the questions I had.

Thank you, Ryan.

Your next question comes from the line of Jonathan Bock from Wells Fargo Securities. Your line is open.

Good afternoon, and thank you for taking my questions. Manuel, I appreciate the comments about measured growth and more importantly, competition. And just to use a comment, I think that you mentioned letting the yields come to you. We respect that. The question centers, though, around the fact that earnings are still a touch life of the dividend. So, could you explain, if the yields aren't where you want and growth isn't where you want, why it's worthwhile to raise high-cost debt on the balance sheet, which puts us further away from dividend coverage in light of the fact that you're being so conservative? So, it seems that - help us understand how there is congruence there when at first glance the decision to raise the high-cost debt appears a bit incongruent.

Wow. Well, I want to be respectful, but I don't agree with almost all of that.

You can't and I respect that. I just want to understand what we're missing because when we put our high cost in on the balance sheet, we end up getting further away from target coverage if you're being conservative. Normally, we see folks try to lower interest cost at that time and will term things out kind of after we've built growth. Does that make sense?

No.

Okay. Because the answer is not all of debt is created equal, and I think this notion and this capitalizing of BDC with short-term bank lines is actually very problematic for me and one that raises all kinds of economic concerns for BDCs.

Okay.

Specifically, the reliance on short term bank line albeit optically looks attractive at 3.5%, 4% yield, if you will, or cost of capital, the reality is you're not getting a really attractive advance rate, especially of entry asset class where most typical banks will only advance 50% ratios on those bank lines. While a bond that, for example, which I disagree with it, they're not very expensive cost of bonds, I just borrowed eight-year money at 6.25% locked-in fixed while my bank lines are all short-term floating rate loans and variable in nature and allow me to have a spread that may expand and compress accordingly. So I'd rather leg out a maturity on my liabilities with the fixed rate liability. So let's take that at face value. So if I'm originating loans that effectively will a 13-plus yield today and they have cost of capital, in this case, cost of funds at 6, I'm getting a 600 to 700 basis point wide spread on that. And that's very attractive when actually matched by maturities on a long-term debt facility itself. When I blend that in to my entire liability structure, my blended overall liability is actually still exceptionally attractive around 5.5%, 5.6% on a weighted basis. So all that serves to be accretive. What people don't potentially realize is that your reliance on bank clients albeit is important from a short term financing facility, you're not able to achieve the optimal advance rates under your bank lines because of single credit concentration limit. And other restrictive provisions that exist within bank clients. Thereby allowing bonds to be much more attractive and fluid in building a very good robust portfolio. And I will always defer to long term type of financing in the bond markets than merely relying heavily on short term bank clients.

Got it. So then just taking that and I appreciate that because that's a comment about advance which is very important. So then even blending this higher expense into the cost structure your views of easily covering the dividend from NOI I mean, that would kind of say that we should expect that near term fairly shortly?

Absolutely. I've said this all along in Q3 and I've said it in Q4 and I'll say it again now. I absolutely believe borrowing some black swan event that this team will deliver that NII coverage which to me is more symbolic than reality, and the only thing that I really care about is taxable earnings which have been covering our dividend for a long time as we had earnings spill over. But that said, the street is fixated on NII to div coverage, dividend coverage. I hear you, I know that, and I can tell you that as I said this early on and I'll say it again now. Once we achieve that optimal utility of our portfolio that $1.3 - $1.35 billion, subject to whatever the yield you want to use, you will more than see that $1.350 billion were generating income that more than surpasses the $0.31 dividend yield. That is expected to be achieved probably sometime in the third quarter whether it's at the middle or the end of the third quarter. That is the trajectory that we are on, and I expect us to achieve that trajectory barring some black swan events. So, yes, that is what we're marching towards, and that is what we will do borrowing some of that.

Got it. And then probably just to keep focused on the liability, [indiscernible], but obviously with such large scale and presence, the choice between line at low rate versus term debt at higher rates, but not secured, provide financial flexibility, isn't there a third avenue that relates to on balance sheet securitization? And I mean - and that likely attractively priced credit not as longer term but certainly matched to the duration of your assets, can you talk about that tool and its potential for use in the current market environment?

Yeah. I'll let Mark answer that in more details, but the answer to that is that Hercules prides itself on having a highly diversified source of funding. Securitization is very much in, that wheelhouse, and you're absolutely right on your comment. Mark will cover that in a second. But that is something that we'll be looking at as well, but I'll let Mark give you more color on that.

Jonathan, it's a great question. The answer is, first of all, no stone goes unturned. Okay. So we're absolutely looking at potential securitizations. We're looking at unsecured. We're looking at - as we've done expanding our facilities, et cetera, and we're trying to make sure we've always got the right mix on our liabilities. I guess the comment that I would make is very complicated in the sense that, hey, you've got to put assets behind it. You've got to make sure it has the right makeup and mix, and you're getting the right yields and advanced rates, et cetera. And it's always a very careful game that you have to play with, but also remember its variable. It's going to move on you especially at a rate increase environment. So today, well it may look really inexpensive. If you start going along on it and the others, where you could fix yourself in like we did on the eighth year, that 6.25%, I'll take that all day long. On the securitization standpoint, is we're seeing some pretty large spreads on those. So, those can go anywhere from 350 to 450 or higher, and we just believe at least the market feedback that we're getting on them, they're not right for us at this point in time, but hey, if it that changes next week, definitely, I'll reserve my answer.

And Jonathan, please take this at face value. We will be doing a note securitization. As we once again top off our bank lines, we will then term out those bank lines, i.e. warehouse facility into a longer-term duration securitization facility. And that will be happening probably later on in 2016 as well.

Makes total sense. Thank you so much.

You're very welcome.

Next question comes from the line of Hugh Miller from Macquarie. Your line is open.

All right. Thanks for taking my questions. Wanted just to touch base a little bit on kind of - we've been hearing that the VC-backed companies have been shifting kind of focused towards achieving profitability as opposed to just really focusing on growing the business with the customer rate. In that type of a scenario where you'd probably see a slower cash earn rate, would you say that that impacts your ability to kind of deploy capital to some of those higher quality firms, if they're less cash drag or is that not a huge issue for you?

First of all, your question is actually - I appreciate it - quite insightful and very astute. But there's a difference in the answer. Actually, those companies are even more attractive to us, and we're more attractive to them. Because the fact of the matter is, although they are pulling back their burn rate and trying to concentrate on getting to a cash flow breakeven or EBITDA breakeven, they nonetheless still need additional working capital. And what they do in that case is minimize the impact on dilution by issuing more shares, thereby driving their EPS even lower. So what they do is they'll actually then complement lesser amount of equity to minimize the impact on that numerator of the number of shares that they're going to be issuing and then supplement that with debt capital to achieve the same level of working capital or new capital they need to fund their growth. So they'll actually be using much more debt in those cases to actually look to fund through a liquidity event and in near term and doing excess of equity. Although it seems very nice to be able to tell a company to bring $10 million a month, somehow you got to then go to cash flow breakeven within three months, the burn rate is down from $10 million a month to maybe $7 million a month, and six months later, maybe $5 million a month. It is very difficult for them to miraculously turn off this spigot of burn. So it takes about nine months or longer to get these guys to stabilize, and some of them will still be burning money, just burning at a lesser rate of money.

Definitely very helpful color there. Thank you for that. And following up on your comment about kind of preference for favorable M&A environment versus an IPO environment, is that just a function of kind of getting the liquidity out at the time of the event as opposed to a slower drawdown via IPO as you sell down the investment? Or are there other factors that play into a preference for M&A over IPO.

Sure. Listen, with no disrespect to IPO companies going out, the biggest risk with IPO companies are that you typically have an investment banking lock-up period of 180 days. Said in different layman's terms, you have two earnings calls. Post the IPO then, you got to pray and hope that they don't miss earnings. And therefore that's additional stock volatility. On an M&A event on the other hand, when M&A happens, we get either paid out or the acquirer assumes our debt with our consent. So, it is a much better liquidity event on M&A than potentially risk an IPO that where they may not choose to pay us down or pay us off at that point. We have many companies who go public who keep our debt outstanding. But we also have a smaller set of examples of companies who go public and do pay off our debt. But our preference, clearly, would be an M&A event. We actually get paid out. We don't have after-market risks either at M&A or IPO event that happened.

Yes. That's helpful. Thank you. And then, last from me, I heard a little bit about one of your peers that just had some challenges with their early-stage VC portfolio with an uptick in kind of some of their charge-offs. And I wanted to just get your sense, I know you guys focus on the later-stage market. But as we look back over history, and not to say that their challenges are a proxy for the early-stage market, but is there - does there tend to be a lag between if we do see challenges in early stage, is there a lag period in which it starts to impact later stage, or how does that relationship work through the cycle?

So, to use a metaphor, early-stage is not the canary in a coal mine. What happens is, is a very simple mathematical calculation. If I'm a venture capitalist and I only have $3 million or $4 million invested in an early-stage company, and that company is still seven years away from monetization of their products and services or monetization of an actual liquidity event as opposed to a later-stage company where I may have $30 million of equity capital as a single receipt and in totality may have $130 million, $150 million of equity capital, the expression that is used in this business is that the VCs are more willing to circle the wagon and protect that more capital-intensive company that they had if that company has a greater efficacy or proving that its business model is working. And thereby it will have to just simply withstand the current cycle that you're in, but it has a better optimal chance in going public than later, which means that you might as well cut and run on the earlier-stage company because you don't have enough capital risk there that really matters. Not to say that VCs do not care about those early-stage companies, but it's lot easier when you're faced with a capital constrained environment to simply say, I'm not going to really support that early-stage company.

Certainly makes sense. Definitely appreciate your insight. Thank you.

You're welcome.

The next question comes from the line of Aaron Deer from Sandler O'Neill. Your line is open.

Hi, good afternoon guys.

Hi Aaron.

A couple of questions one is it was nice to see the $12 million appreciation on the loan book. I'm wondering it's unfair we have to miss in terms of the credit outlook. I'm wondering what the potential pipeline, if you will, of additional write-ups might be to the extent that you'll see continued improvement in credit.

Well, we are actually - we obviously are taking what we know how to do well, and that is evaluate credit in a very rigid basis. As always, we think that our credit book is truly reflective of what's going on in the marketplace and what's happening out there. I think one of the things that you see in our portfolio is that many of our companies when they achieve an equity new raise, we will then remark up or reevaluate the mark on that portfolio company because they now have re-topped off the coffers with additional capital or, said differently, the risk profile has dramatically improved post the equity raise. As many of our companies are embarked on doing it right now, Q1 and Q2 is typically a fairly robust period of time for many of our companies raising capital. Hercules typically - unlike many other BDCs out there, we actually lower the risk rating in those companies until such time as they raise the new level of equity capital and then it's - in our minds, they go off risk again. We do not see clearly a disproportionate increase in the credit outlook or credit concern to our portfolio. I think that the credit portfolio march right now reflect what we think is a good outlook unless some, again, Black Swan event occurs in Q2. We think that we saw some nice resiliency of the biotech marketplace occur in Q1 albeit some pick up in technologies, but not anywhere near the pickup that we've seen in life sciences that occurred. Many of our companies, however, are in fact closing new rounds of equity capital. That is a good testament of our teams identifying and picking the right companies who are able to raise subsequent amounts of equity capital and get that additional amortization cash or capital to continue to pay down our loan. And that is a process that we see right now. But I don't see this disproportionate pick up my credit concerns right now in the marketplace, especially since we don't really do a lot of early-stage deals.

Okay. So it sounds as though, as these fundings come through, and you sound pretty optimistic that they will, that we could continue to see the mark-ups outweigh the mark-downs on the credit side.

The answer is yes. I believe it's from what we know today, and I think that that continued pace of continued improvement on a credit book should occur and will occur. As I've said, many of our companies are currently in the midst of raising new equity rounds capital. But only let's say, less than a handful, we have a closer scrutiny on those going on right now, but the vast majority have or are in the process of securing new rounds of equity capital which upon completion, will dramatically improve further the credit book than what it is today which is already quite strong. But yes, to answer your question, I don't have this great credit concern in the marketplace today. We are nowhere in 2007 and 2008, if that's what you're asking me. We're far from that today.

It's great. And then a question for Mark. You - if I heard you correctly in your commentary, you said that excluding the early pre-payment impacts, that there was a 3% sequential increase in core investment income. Was that right?

Correct. So what we did is we wanted to try to take the noise out of the numbers so you guys can understand how we did on a core basis. And the core basis, we grew from Q4 to Q1 by approximately 3%.

So the average loans over that period I think were up like 6%?

Correct.

And then, of course, you had the 25-basis-point raise hike. So, what are the variances there? Is it a lower deal than new investments or - and then there's some other accretive impacts that are [indiscernible]?

No, not at all. So the way that you want to think about it is, remember, we've got some that pay off, and we have obviously the ones that we've added on. On a - just on a core versus non-core, the answer is, as you add in ones that have a core value, that will increase the investment income amount, and that's really kind of what we've generated. That's why we saw the approximate $37 million from the $35 million increase that I was speaking to in the script because we're adding those new investments on board.

So, Aaron, let me take a stab this way. So what is going on in the portfolio is, as the portfolio continues to grow organically, we have less and less reliance on one-time events, fee-driven events in order to continue to grow earnings. What is happening is, because the lack of amortization - because the lack of early repayment activity going on, we're simply able to continue to add to the core portfolio assets that are generating yields at higher and higher rates as we're originating in Q1 and hopefully additional yields in Q2. As we have those new loans at a higher yield, our core earning capacity of that portfolio is going up itself naturally. Then what happens is, if you add the expected in the second half of 2016, early payout activities use the generating income that should far exceed the $0.31 in dividends driven by these early payout activities. But we want, and our focus is, to drive core portfolio growth minimizing the need for one-time income event to get to that $0.31. And if that happens, you'll have a portfolio that if the one-time events occurred, you'll be generating income well above the $0.31 by those one-time events that occurred. And that's exactly what we're doing right now. The slide that actually shows this core portfolio of earnings growth in the portfolio as we continue to grow the asset.

Yeah. No. I understand all that. I'm just - I'm trying to understand the dynamics just with - between the fourth quarter and the first quarter. And - because I thought that that core number that you were referring to, the 3% increase, excluded the impacts of the early pre-payment activity. But apparently, I must've misunderstood. I'll follow up with you afterwards on it.

Okay. Yeah. Sorry for the confusion that exists. Mark, I think he covered it, but we're happy to kind of provide you more color or more detail on that certainly.

I appreciate that. Thanks for taking my questions.

Your next question comes from the line of Robert Dodd from Raymond James. Your line is open.

Hi, guys.

Hi, Robert.

Hi. Going back to that competitive environment, if we can, for a second. Would you say there's any correlation between that increasing competition and the acceleration modest of early repayment activity? I mean, if I was a new entrant, the first thing I do is try and pick up loans you already underwritten the 200 basis points less because you probably are better underwriter than I am. I've been picking up your business. So is there any connection there? Could we see that accelerate or is that just unrelated and not a problem right now?

Well, I wish that we you just said actually occurs because by that occurrence, we're able to grow our portfolio and receive the benefit of their early repayment activities will further drive earnings and drive our earnings growth. So we'll happily - we actually love to see that happen on [indiscernible] assets. We've already said that. Maybe new entrants are noticeably able to distinguish good and bad credits whether it's from our portfolio or new loans their trying to originate. So what happens right now is that many of new entrants may not have the capabilities to take out the $20 million loan or $30 million loan that we may have in our books. So they're much more willing and able to pick up those loans that are much smaller than in our loan portfolio or go after the more aggressive stage of development companies in that $3 million to $5 million, $5 million to $7 million, $7 million to $15 million size which are more competitive, and then forego wider spreads. So, although competition will and may drive early repayment activities, with what we're seeing today, the new entrants that we're seeing don't initially have the balance sheets or the wherewithal to really take out larger credits of ours to make a difference. So, most of the credits that we may see paying off are not necessarily larger in size.

Okay. Got it. One housekeeping one for Mark or Manuel. On the core yields, you said you expect them to stay in the 12.5% to 13.5% range going forward. I mean will they be accurately inspecting the associated cost spread and obviously, if rates rise, those core yields would rise as well. Or does that factor in kind of yield expectations [indiscernible] expectations?

Clearly, 12.5% to 13.5% encompasses any expected future appreciation or accretion in yield that we may realize over time. So, that range, I think, is a comfortable one to speak to on that. What the earlier payment activities will occur or trigger would be an increase in activities in the effective yields and that can literally - depending on the size, a $20 million early repayment activity that generates a 2% early repayment could have as much of an impact of - depending on the vintage up to almost $0.005 in earnings accretion associated with it. So, it really depends on the maturity of the portfolio. One of the things that Mark said is the current LTV in the static agent portfolios are two very important indicators of the health and vibrancy of the portfolio we have presently today. And I'd like to call your attention now, when you look at our portfolio, we currently have an LTV of 15% in our portfolio and compared to a 16% LTV last quarter. So that's an important indication in terms of a lot of our companies have both recently topped off new equity rounds of financing. Very new entrances or very new loans that we originated rarely pay off quickly. These have a 3% pre-payment penalty typically associated with it. So it's not much of an appetite to take somebody out of a brand new loan. More older loans, certainly now have a much more lower pre-payment penalty, and that's where we expect to see a little more activity taking place. Unfortunately, some of those older loans may not really lead to a higher increase in the effective yield from those loans. And those are the ones we're seeing. But I want to be very clear here. We're talking about maybe a $20 million to $30 million potential increase in early repayment activities. And we're not saying that that's going to happen yet, but we are seeing some signs that that may happen. We will have better visibility on that as we complete Q2, and as I said in Q4, we certainly expected to see much more pick-up in early repayment activities in the second half of 2016, but we get to see some signs of noise level today. But again, it's very hard for us to have confidence levels on being very specific on early repayment activities currently today.

Got it. I appreciate it, fellows. Thanks.

I would now like to turn the conference back over to Hercules.

Thank you, operator. And thank you everyone for joining us on this call today. We're in the process of setting out numerous non-deal road shows in the month of May and June. I expect to be touring New York, Boston and Chicago right now. And we'll expand that to additional cities as we look at the schedules and investors' interest. Again, thank you very much. If you would like to schedule a meeting with us, please feel free to contact Michael Hara, available on Hercules website or directly by calling Hercules at our main office at Palo Alto. With that, thank you, operator and thank you, everybody.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.